Assessing investment risk in Ghana's microfinance sector
This report provides information to investors interested in Ghana’s microfinance sector by creating a framework for assessing investment risk in microfinance.
Ghana welcomes foreign investments. Attractive features of Ghana’s microfinance sector include political stability, public security, presence of educated professionals and stable policy environment. Risks for investors include:
Small market size;
Heavy dependence of the economy on world gold and cocoa prices;
High risk of re-emerging inflation;
Dependence on government securities for investment in Ghana’s market;
MFI preference to hold assets in government papers;
Lack of a long term instrument for investment in the market;
Large inflational differential between Ghana and the U.S. and European Union, leading to Ghanaian exporters losing competitiveness;
Lack of a hedging instrument for MFIs that obtain foreign currency funds and need to repay in foreign exchange;
Crowding out of funds for the small borrower due to banks’ investment in Treasury bills.
The report adds that the high entry capital requirements for MFIs and slow growth of the sector also act as risks for investors.